INSURANCE MARKET UPDATE
2003 proved to be an exceptionally fine year for the property/casualty insurance industry, with profitability approaching "reasonable levels for the first time in years," notes Robert P. Hartwig, Ph.D., senior vice president and chief economist, Insurance Information Institute, "as higher premium revenues, improved underwriting and a turnaround in the equities market had their predicted effect on the industry's bottom line." The result was a statutory rate of return of 9.4%, up from 1.1% in 2002 and the worst-ever negative 2.3% in 2001, according to results released by the Insurance Services Office, Inc., and the Property Casualty Insurers Association of America.
The industry's net income after taxes rose to $29.9 billion--nearly 10 times the industry's $3 billion in net income in 2002. Surplus, benefiting from the net income and $25.2 billion in unrealized capital gains, rose 21.6% to $347 billion at year-end 2003 from $285.4 billion at the end of 2002.
Hartwig warns, however, that the 9.4% return still falls well short of the Fortune 500's return of 12.6% last year. P-C stocks continued to "lag behind the major market indices and downgrades continued to outpace upgrades by a wide margin," Hartwig says, adding: "This was a clarion call to all insurers: your work is not done--more improvement is necessary."
Hartwig also noted that the record surplus will "become the number of record in the upcoming debate over reauthorization of the Terrorism Risk Insurance Act (TRIA) currently scheduled to expire at the end of 2005."
Against this backdrop comes the worrisome news that insurers in the first quarter already are beginning to let pricing ease in the commercial lines, according to The Council of Insurance Agents & Brokers' survey of members and analysis by Lehman Brothers Equity Research. One broker in the Southwest commented: "We fear the insurers may get back into the 'stupid' season." A broker in the Pacific Northwest added: "Softening pricing is a recipe for another awful cycle of insolvencies."
The CIAB survey found that about 50% of small accounts, those generating less than $25,000 in commissions and fees, showed an average premium increase of about 3%. Mid-sized accounts, ranging from $25,000 to $100,000 in commissions and fees, had an average increase of 1%. Large accounts showed a decrease in premiums of about 3%.
"The survey still shows some trouble spots in the commercial market, where commercial coverage is hard to find and expensive when you can find it," says Ken A. Crerar, president of the CIAB. "The biggest trouble areas remain in residential construction risks, umbrella coverage, workers compensation and medical malpractice."
The survey also suggested there might be another looming environmental concern that is beginning to be excluded from renewal policies--silica. This was the first time silica has appeared in market index responses. Silica is an element that can be found in quartz and sand. It is the basic material used for most common communication-grade optical fibers. In crystalline form, it can cause a disabling and sometimes fatal lung disease.
St. Paul Travelers expands overseas coverage
St. Paul Travelers introduced an enhanced version of Global Companion, an international commercial property and general liability product for U.S.-based companies that conduct business overseas. The enhanced product adds kidnap and ransom and incidental ocean cargo. The product also covers property, liability, excess auto, foreign voluntary workers compensation and executive assistance. Also added was coverage for events or offenses that are committed in the United States when the claim or lawsuit is filed in a foreign jurisdiction. Domestic companies with foreign operations that conduct business over the Internet can obtain coverage for e-commerce.
For more information, visit the insurer's Web site (www.stpaultravelers.com).
New flood products offered through NFIP
The National Flood Insurance Program introduced new Preferred Risk Policy (PRP) flood insurance products, effective May 1. The policies, for both commercial lines and personal lines risks, are designed for use in low-to-moderate risk zones, where one in four NFIP flood insurance claims occur. Tropical Storm Allison and Hurricane Floyd caused widespread flooding and property damage in these areas.
For the commercial market, the new Preferred Risk Policy comes in two forms:
1. For owners of buildings--including businesses, schools and farms--a combination building and contents policy provides limits up to $500,000 for the building and $500,000 for contents.
2. For businesses whose owners do not own their buildings, a "contents only" product is available with limits up to $500,000.
The premiums for these commercial PRP policies are at least 30% below those for the standard flood insurance policy.
For the personal lines market, the PRP product is a contents-only policy for renters of apartments or houses. It offers limits up to $100,000.
More information on the new products and marketing tips can be found at the FEMA Web site (www.fema.gov/nfip). *